Act creates more rigorous DB funding requirements and safe harbour against anti-garnishing rules
The United States Senate overwhelmingly passed what some call the most significant overhaul of the country’s pension system in three decades.
The Senate voted 93-5 in favour of the Pension Protection Act, which deals with aspects of total rewards packages including retirement plans and health plans.
The act will require defined benefit (DB) plans to be funded at 100 per cent of liability measures and the plans will have seven years to make up shortfalls. The act also increases the annual deductible contributions an employer can make.
If the act gets presidential approval, the new measurement standard will result in more plans being considered “at risk” of failing and will thus be subject to more rigorous funding requirements. Significantly underfunded plans will be subject to separate limitations on additional benefits and lump-sum payouts.
The act will require that when a company switches to a hybrid plan, one that exhibits traits of both DB and defined contribution (DC) plans, employees immediately begin accruing benefits under the new plan, in addition to benefits accrued under the prior plan.
The bill also provides a safe harbour from state anti-garnishing rules to encourage employers to include automatic enrolment in their 401(k) plans, as long as the plans match at least 50 per cent of contributions and the plans vest in no more than two years.
The act allows the purchase of long-term care insurance from an annuity or life insurance plans. It offers long-term care incentives that allow the transfer of pension assets to fund future health-care costs of a retiree.
Earlier proposals that would allow those with flexible health-spending accounts to carry their unused balances forward didn’t make it into the final version of the act.
The Senate voted 93-5 in favour of the Pension Protection Act, which deals with aspects of total rewards packages including retirement plans and health plans.
The act will require defined benefit (DB) plans to be funded at 100 per cent of liability measures and the plans will have seven years to make up shortfalls. The act also increases the annual deductible contributions an employer can make.
If the act gets presidential approval, the new measurement standard will result in more plans being considered “at risk” of failing and will thus be subject to more rigorous funding requirements. Significantly underfunded plans will be subject to separate limitations on additional benefits and lump-sum payouts.
The act will require that when a company switches to a hybrid plan, one that exhibits traits of both DB and defined contribution (DC) plans, employees immediately begin accruing benefits under the new plan, in addition to benefits accrued under the prior plan.
The bill also provides a safe harbour from state anti-garnishing rules to encourage employers to include automatic enrolment in their 401(k) plans, as long as the plans match at least 50 per cent of contributions and the plans vest in no more than two years.
The act allows the purchase of long-term care insurance from an annuity or life insurance plans. It offers long-term care incentives that allow the transfer of pension assets to fund future health-care costs of a retiree.
Earlier proposals that would allow those with flexible health-spending accounts to carry their unused balances forward didn’t make it into the final version of the act.
